KUALA LUMPUR (April 7): A market survey of insurance industry professionals commissioned by Malaysian Reinsurance Bhd (Malaysian RE) has found that treatment costs in the private healthcare system are not based on the type and criticality of the disease but on the type of payer.

“If a patient enters the hospital as a self-payer, their cost of treatment will be lower than if they had health insurance, which results in maximum treatment charges. There is also concern that private hospitals prescribe more — and often unnecessary and more expensive — treatments if the patient is insured,” said the latest edition of Malaysian RE’s annual research publication, Malaysian Insurance Highlights (MIH) 2025.

Malaysian RE, a wholly owned subsidiary of MNRB Holdings Bhd (KL:MNRB), is the largest national reinsurer in the Asean region by assets. It underwrites all classes of general reinsurance as well as general and family retakaful through its retakaful division.

MIH 2025 combines research carried out by its long-term partner, Faber Consulting, together with the results of a market survey of Malaysian insurance industry professionals.

The market survey this year consisted of select in-depth discussions with senior executives from Malaysian insurance, reinsurance and brokerage companies, as well as insurance associations.

Private healthcare financing products in Malaysia are offered by general insurers, life insurers, general takaful operators and family takaful operators. The market volume in 2023 was RM7.33 billion.

MIH 2025 said life insurers and family takaful operators have experienced the strongest growth in recent years and dominate the market, but they have recorded underwriting losses for several years.

This unsatisfactory performance is mainly due to a significant rise in claims.

For example, medical claims for both these providers increased to RM5.3 billion in the first half of 2024 (1H2024) from RM4.7 billion in 1H2023, driven by an increase in the incidence rate, particularly of chronic and acute cases, combined with an overall increase in the average cost of medical treatment.

General insurers and general takaful operators are also experiencing worsening claims trends in medical and health, although general insurers are likely to be in a slightly better position than life insurers and family takaful operators.

The survey report found that both life and general insurers see, at best, marginal profitability, with little appetite for general insurers to offer more coverage or take on more policies.

Life insurers see claims ratio for private health insurance as being close to 100%.

For general insurers, MIH 2025 said private health insurance accounts for less than 10% of their portfolio and given current claims ratios, none of those interviewed voiced an interest in growing that share. In fact, some mentioned that they recently shrank their portfolio due to its disappointing performance.

According to interviewees, group private health insurance is more profitable than individual private health insurance; however, it is also prone to more heated competition.

“In addition, health insurance is used by life insurers as a ‘rider’ to sell life policies due to its stronger demand. However, life insurance is more profitable, so health products can often benefit from a cross-subsidisation from life products,” it said.

Some hope for growth in the market comes from new digital players offering targeted products online and health insurers extending coverage through add-ons such as for mental health and disability, or through products that include coverage for alternative medicine or preventive care.

In response to these adverse developments, many life insurance and family takaful operators are continuing to implement repricing exercises for their medical and health products. The impact of these pricing adjustments on underwriting margins is expected to unfold gradually, as the changes are only applied at policy anniversaries.

“To address the challenges and uphold affordability for policyholders, insurers and takaful operators are adopting various strategies. These include distributing premium increases over multiple years or introducing shorter pricing cycles with smaller, more frequent adjustments. Such measures aim to alleviate the immediate financial burden on policyholders and facilitate better financial planning,” it added.

According to Malaysian RE, insurers have limited ability to control medical claims, especially smaller players who often find themselves at a disadvantage.

These insurers are typically on the "receiving end", with little leverage to challenge claims, as they are given only a few hours to settle a claim — a requirement for the patient’s discharge from the hospital.

As a result, their only viable options are to reduce exposure by limiting coverage capacity, potentially exiting the market, or to raise rates in line with rising costs.

It said insurers are teaming up with hospitals that become trusted, accredited partners and trying to redirect patients to these hospitals — if insureds insist on using other hospitals, they have to pay upfront themselves and only receive reimbursement later — and potentially not for the full amount.

“Another cost control option being applied by insurers is the requirement for a guarantee letter from the insurer before treatment begins. As part of this process, the insurer may challenge or will approve the treatment prescribed by the hospital and is thus able to control costs to a certain degree. However, this option only applies to elective treatments and not to emergencies.

“Options are limited if the insurer thinks that they have been overcharged. Some use third-party loss adjusters to renegotiate with the hospitals. For accredited hospitals, there is also the threat of taking them off the accredited list. However, with hospital groups merging in Malaysia, this negotiated power is reducing,” it said.

Ultimately, political will is required to bring all stakeholders to the table to limit costs — most likely through a transparent database that defines the cost per treatment, as in diagnosis-related group systems.

“A greater focus on prevention is also needed to address lifestyle shifts that have given rise to the increase in NCDs (non-communicable diseases). And finally, treatments must shift from inpatient care to general practitioners and other outpatient specialists that can treat many diseases just as effectively but at lower cost,” it added.